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Fixed Income
Opportunities in U.S. high-yield credit
Shannon Ward
Fixed Income Portfolio Manager
June 21, 2023

Shannon Ward, fixed income portfolio manager, discusses numerous factors she believes are creating a compelling opportunity in U.S. high-yield bonds.


This transcript is intended to be presented only when accompanied by the video that includes additional important information and disclosures.

Shannon Ward:

So what really gets me excited is when I work with our analysts to find good companies that will last through the cycle.

When clients ask me how I feel about the high-yield asset class and what are the factors that are impacting high yield right now, the first thing that comes to mind and that we talk about is the fact that yields are attractive. 

That hasn't been the case for a number of years. The other thing that's, I think, less understood about high yield is just how much higher quality it is now than it has been in many, many years. 

The majority of the high-yield issuers are actually BB-rated, and that's not a normal situation for high yield. Usually, we're more majority single B, but right now there's a lot more higher quality high-yield companies for a portfolio manager to choose from when building portfolios. That allows us to put portfolios together that have more resilience in case we're entering a soft patch and have more protection against the thing that we worry about in high yield, which is distress or defaults.

Another factor that we talk about when it comes to the attractiveness of high yield is that we actually are buying at a discount now. 

The asset class is trading below par, and when you can buy high-yield companies at a discount, then the return you can expect to earn is coming not just from the coupon income but also from price appreciation as those bonds return to par.

We're focused on companies that don't need to refinance right now, that have done the refinancing work over the course of the last few years when rates were really low. The key for us is to pick companies and build portfolios around issuers that can withstand higher rates, higher costs of labor, rising costs across their income statement but still manage to support the leverage that they have and service the debt. What really gets me excited is when I work with our analysts to find good companies that will last through the cycle.

So those are a number of factors that I think about when I think about the attractiveness of high yield. 

Shannon Ward is a fixed income portfolio manager with 31 years of investment industry experience (as of 12/31/2023). She holds an MBA from the University of Southern California and a bachelor's degree in psychology from University of California, Santa Barbara.

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